The traditional and still current approach for providing electricity to point-of-use sites (such as residences, businesses, etc.) is based upon a centralized generation model. Under this model, a centralized power plant converts energy, derived from a variety of energy sources, such as coal, oil, natural gas, water, wind, solar, nuclear, etc., into electricity. The electricity is then transmitted to the point-of-use sites via a power distribution grid (hereinafter, “power grid”), which typically includes a combination of high voltage long distance transmission lines, regional medium voltage lines, and local direct hookup lines.
The energy conversion efficiency that can be achieved by a power plant differs based upon the type of plant and the energy source that is used by the plant, but it has been estimated that a power plant that uses fossil fuels, for example, is able to achieve a peak energy conversion efficiency of 50%-60%. This means that the electricity that is generated by the power plant is 50%-60% of the energy derived from the energy source, which in turn means that 40%-50% of the energy is lost during the conversion process. This peak efficiency of the plant is achieved at full plant output; for partial loads, the conversion efficiency is even lower. In addition to conversion losses, there are also distribution losses. It has been estimated that 20%-35% of the electricity provided by the power plant to the power grid is lost in the process of distributing the electricity to the point-of-use sites. Taking conversion losses, distribution losses, and other losses into account, it has been estimated that only a 30%-45% average net efficiency is achieved using the centralized generation model, which means that 55%-70% of the energy derived from the energy source at the power plant is lost. This inefficiency leads to many adverse consequences, such as higher energy costs.
Another drawback of the centralized generation model is that it does not adapt well to changing demand loads. Typically, to accommodate greater energy demand, an energy provider, such as a utility company, brings one or more additional power plants online, or increases the output of one or more currently operating power plants. This usually requires a fair amount of lead time; thus, this increase in capacity only works well when the increase in demand is known in advance. For unscheduled or unpredictable demand increases, the centralized generation model does not adapt very well or very quickly. As a result, the utility company is put to a difficult choice. The utility company can constantly maintain enough electrical capacity to satisfy a typical peak load. This would mean, however, that for most of the time, more electrical capacity is available than is used; hence, energy is wasted. Alternatively, the utility company can provide just enough electrical capacity to satisfy a normal demand load. However, if energy demand rises unexpectedly, the utility company will not be able to adapt quickly to accommodate the increased demand. This alternative approach can lead to such adverse consequences as temporary blackouts and rolling blackouts, which have been experienced repeatedly over the years.